Newly delisted from NYSE, Party City gets OK to access $75M bankruptcy loan

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A federal bankruptcy judge granted Party City Holdco Inc. immediate access to $75 million in debtor-in-possession financing, enabling the struggling retailer to continue operating in the near term.

As part of a Jan. 18 ruling from Judge David Jones in U.S. Bankruptcy Court for the Southern District of Texas, the Woodcliff Lake-based company will be able to cover some pre-bankruptcy expenses as well as pay employees and critical suppliers.

On Jan. 17, the party goods retailer announced it filed for Chapter 11 relief and entered into a restructuring agreement with a bondholder group that would allow the company to reduce its $1.67 billion debt load.

Party City – which reported liabilities and assets of $1 billion to $10 billion and 10,001 to 25,000 creditors – also asked the court to maintain “business-as-usual operations” to keep its 800-plus stores open, pay wages and benefits, and “honor customer programs and policies.”

Additionally, the company said it has secured $150 million in debtor-in-possession financing and that the funding, which is subject to court approval, would be used to support operations.

A hearing to consider when the remainder of that debtor-in possession loan would become available to Party City is scheduled for Feb. 14.

Altogether, restructuring is expected to be completed in the second quarter of 2023, according to Party City. Its subsidiaries outside of the U.S., its franchise stores, and its Anagram business are not part of the bankruptcy proceedings.

Inflationary impacts

In a statement announcing the voluntary bankruptcy filing, Party City Chief Executive Officer Brad Weston said, “In the face of pandemic headwinds, a global supply chain crisis, and other macroeconomic challenges that have faced our industry, we have made significant strides in PCHI’s ongoing transformation – establishing a solid foundation for long-term growth and continued success as the market leader in the celebrations space. Today’s action to strengthen PCHI’s balance sheet will bolster our ability to further advance our strategic priorities and continue to innovate and elevate the customer experience.”

In discussing the company’s most recent quarterly report in November, Weston said inflationary pressures were continuing to impact consumers’ ability and willingness to spend money on celebrations.

As of Sept. 30, 2022, Party City reported $1.67 billion in debt, with available liquidity of $122 million, made up of $30 million in cash and $92 million of revolver availability.

For the third quarter of Fiscal Year 2022, Party City recorded total net sales of $502.2 million, a 1.6% decrease from Q3 2021. Meanwhile, adjusted loss for the period came in at $1.39 per share — wider than Wall Street analysts’ estimates of $0.10 per share.

To manage the difficult period, Weston said at the time that the company would trim costs by $30 million — savings that it expects to come out of retail store efficiencies, like information technology contracts, marketing expenses, professional services and raw materials, and a 19% reduction in corporate workforce.

Within 24 hours of Party City’s bankruptcy filing going public, the New York Stock Exchange announced the retailer’s stock would be immediately delisted.

The notification comes a month after Party City was warned by the NYSE that it was at risk of being delisted for failing to maintain an average $1 per share stock price over a 30-day trading period.

In a Jan. 18 statement, the stock exchange made its delisting determination based on “the uncertainty as to the ultimate effect of this process on the value of the company’s common stock.”

“NYSE Regulation also noted that the Company’s restructuring support agreement contemplates that the holders of the existing common stock of the Company will receive no recovery or distribution,” the statement added.